Key Difference Between Auto Financing and Auto Title Loans

Auto financing is a form of credit, where a car buyer borrows a certain amount of money to pay for a vehicle. The buyer goes to a bank or other lender to obtain the loan. Auto financing can be issued by credit unions, banks, or the credit departments of the major auto companies. One auto financing source isn’t necessarily better than another. It is essential to do your research online to have some idea of what’s available out there regarding kind of auto financing banks and auto manufacturers are offering on the vehicle you’re interested in.

The car financing process also involves reviewing your credit report before you start shopping for a car or auto loan. Your credit report includes your name and address, and information on your credit accounts as well as your payment histories, and whether you have been arrested, sued or have filed for bankruptcy. Creditors, employers, insurers, and other businesses get your credit report from credit reporting agencies. In turn, these businesses use the information to evaluate your credit worthiness when you apply for loan or any type of credit. Yes, the dealership or financial institution will check your credit when you apply for a car loan or auto financing. And remember, the better your credit rating, the better the loan or auto financing terms you’ll get.

Once you have set your car-buying budget, reviewed your credit and have an idea of how you would qualify for auto financing, go to your bank or financing company. If you have an established relationship with a lender, they may be interested in approving your request by offering you auto financing.

If you need fast but a bad credit record keeps you from obtaining traditional loans, taking out an auto title loan is a quick way to get the cash you need. There is no credit check or minimal income verification. The process is pretty straightforward, but you need do your homework.

In an auto title loan, the lender evaluates the value or price of your vehicle based on wholesale values and then issues you a loan based on your car’s worth. You surrender your vehicle’s title to the lending company, and you don’t get it back until your loan is paid back. The loan is not similar to when you purchased your vehicle. The auto title loan is a short-term loan that comes with a high interest rate, and if you fail to repay the loan within a specified time period, with interest, you have essentially sold your vehicle to the lender by default.

Because this auto title loan is a loan based on equity you have built up in your vehicle, with most auto title loan providers, you’ll be required to own the vehicle outright. Other requirements may include proof of your income, proof of residence and a minimum age.